Governing Regional Development Policy: The Use of Performance Indicators

This report examines both the challenges and the opportunities associated with designing and using indicator systems as a tool for the governance of regional development policy.

It draws on the experiences of a number of OECD countries and provides an in-depth look at the cases of Italy, the United Kingdom (England), the United States and the European Union.

It builds on previous OECD work on the governance of regional development policy by extending lessons about contractual relations among levels of government to performance indicator systems.

Governing regional development policy is a complex task. The environment is characterised by vertical inter-dependencies between levels of government, horizontal relationships among stakeholders in multiple sectors, and a need for partnership between public and private actors. In this context, effective governance requires a flexible mechanism for meeting information needs and promoting performance. Indicator systems hold promise for doing just that.

The goal of this report is to learn how indicator systems can be used as a governance tool in a regional policy context, with a particular focus on the role of monitoring.

The 4 Research Questions

1 - What is the rationale for using indicator systems in a multi-level governance context? 2 - How are indicator systems designed and used to enhance the performance of regional development policy? 3 - What factors facilitate or hinder the implementation of these indicator systems? 4 - What lessons can be drawn about the overall use of indicators as a tool for enhancing governance?

What are the Good Practices?

The following good practices are linked to a series of key findings which emerged through this report:

• Indicator systems promote learning. The process of developing and using indicator systems exposes stakeholders to information that they did not have at the outset – about programme performance, about actors’ capabilities, and about the feasibility of a particular indicator system. The feedback provided by the use of indicator systems should be used for continuous improvement both in terms of policy but also in terms of the indicator system itself. For evolution to occur, the systems must be sufficiently flexible to accommodate user feedback, as well as policy and programming changes.

• There is no “optimal” design for a performance indicator system. The design and use of the system will depend heavily on the objectives established for the monitoring system and policy/programme objectives under consideration. As such, establishing clear objectives from the outset will greatly facilitate indicator selection, choices regarding incentives, and the proper use of information.

• Incentives are inevitable with the use of indicator systems. The strength of incentives depends on how information will be used and by whom. Attaching explicit rewards (or sanctions) to performance data can be a powerful way to encourage effort and improvement; however an explicit monetary incentive is not a sufficient condition for success. The use of incentives can be challenging and important conditions must be met for such an approach to work effectively. As such, careful consideration should be given to the effects generated by the incentives in an indicator system.

• Partnership between central and sub-central levels of government is crucial. Vertical interactions between institutional levels, as well as horizontal co-operation and peer processes facilitate formulating precise objectives, identifying relevant indicators, setting realistic stretch targets, and devising appropriate incentive mechanisms. Moreover, rewards and sanctions are more likely to create the intended incentive effects if there is strong ex ante commitment from all levels of government to rigorous assessment of performance. In the absence of collaboration, a top-down approach to design and use of indicators by the central government can be perceived as an ex post substitute for ex ante control of regional economic development, producing resistance and jeopardising the long-term sustainability of the system.

• Indicator systems should help inform short-term decisions, as well as long-term strategy. Regional development policy produces outcomes that materialise over an extended period of time. Orienting an indicator system toward these outcomes can be beneficial, but excessive focus on outcomes can produce a deficit of information that is needed for strategic short- and medium-term decision making. Thus, even where policy makers are oriented toward outcomes, indicator systems should strive to produce information on inputs, processes, and outputs that is relevant for ongoing monitoring activities.

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